In 2024, we sold a rental property that was co owned by three siblings, my two sisters and me. I solely managed and collected the rents during our ownership. We never claimed the depreciation during our ownership.In this situation, how to assign the depreciation recapture among three of us? And who should be the one to file Form 3115?

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By55

Question

Depreciation Recapture

Forum|Forum|1 year ago
March 25, 2025
1 reply
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In 2024, we sold a rental property that was co owned by three siblings, my two sisters and me.
I solely managed and collected the rents during our ownership. We never claimed the depreciation during our ownership.
In this situation, how to assign the depreciation recapture among three of us? And who should be the one to file Form 3115?

DavidD66

You should allocate the depreciation recapture the same way you reported the income and expenses for the rental property? Did you report on a Form 1065 Partnership return. If so, you file Form 3115 with the 1065 and the depreciation recapture is allocated via the K-1s. If each of you reported a third of the expenses on their personal tax return, each of you will need to report the sale of a third of the property, and would file their own Form 3115 if necessary. You would each have your own depreciation recapture as part of reporting the sale.

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By55Author

Three of us co owned the property for 4 years before selling it. I was the only one who collected the rental incomes and reported rental expenses for those 4 years.

Is it true that I am the only one who need to file Form 3115 and should claim all depreciation recapture because I reported all rental incomes and rental expenses for those 4 years?
Also noting that each one of us received Form 1099-S with 1/3 of sale proceeds.

DianeW777

It may be best to have a tax professional help with all of the tax returns. There are several variables and we don't have all of the information.

Find a TurboTax Verified Tax Professional near you

Based on your information you could report the 3115 on your tax return to include all depreciation expense that was never used. However then the recapture of all the depreciation will and should be done on your tax return because you will reap the benefits of the deduction and therefore add back that portion of the income as recapture up to the amount of gain.

What should I do if I didn't take depreciation on my rental property?

It's quite involved to accurately report the sale because depreciation is considered allowed or allowable (use it or lose it). The meaning of this is whether you used it or not when it was a rental property, you will recapture it when it is sold.

Simplified, calculate the depreciation for all years, divide it by the number of owners (yourself and siblings). Report a Sale of Business Property and list the appropriate figures as noted below on each tax return.

Sale of Business Property:

Income and Expenses at the top
Scroll down to Other Business Situations
- For TurboTax Desktop: Business Income and Expenses > Less Common Business Situations
Select Sale of Business Property
Select Sales of business or rental property that you haven't already reported.
Answer 'Yes' to Do all of the following apply...?
Enter your sales information:
1. Description of the Property (Machine Type)
2. Sales Price/Sales Expenses
3. Date acquired and date sold
4. Cost
5. Depreciation

Since you didn't take depreciation you could enter only one third of the cost basis for the rental as an asset (and use that for Form 3115), then enter your sale through the rental property asset.

Chart for 27.5 year residential rentals.